(Bloomberg) — The U.S. is heading to the precipice of a debt default as much for the sake of campaign ads and political branding as fiscal philosophy.
While agreeing that the statutory limit on U.S. borrowing must be raised before it’s breached sometime next month, Republicans and Democrats are completely at odds over who should act.
Senate GOP leader Mitch McConnell argues that Democrats alone are responsible since they are pursuing a partisan multi-trillion dollar tax and spending plan. The Senate’s top Democrat, Chuck Schumer, accuses Republicans of trying to “dine and dash” on the cost of their 2017 tax cuts and wants their fingerprints on the vote to raise the debt ceiling.
The debt limit fight has become part of an ongoing struggle between the parties to shape public perceptions of President Joe Biden’s agenda heading into next years congressional election.
For Republicans, it puts the focus on the overall cost of Biden’s economic plan, rather than popular components like paid family leave and an expanded child tax credit. And it ties Biden to the rising national debt, never mind the ballooning deficits under former President Donald Trump.
That prepares ground for the kind of traditional Republican campaign against tax-and-spend liberalism that McConnell is trying to steer his party toward instead of centering the midterm election on cultural issues and Trump’s false charges about election fraud.
At its most basic level, McConnell’s bid to force a Democrats-only vote to raise the limit gives the GOP ready ammunition for campaigning.
“It’s another line in the attack ad,” said Michael Steel, who was then-Republican House Speaker John Boehner’s press secretary during the 2011 fight over raising the debt limit. “Increasing the debt limit is a terribly unpopular vote.”
Many lawmakers make little effort to cloak their political motives. Republican Senator Rick Scott, who heads the Senate GOP’s campaign committee, said he expects Democrats’ votes in favor of raising the debt ceiling will feature prominently in the 2022 election.
“Oh yeah, you’re going to hear about it a lot,” Scott said.
Senator Joni Ernst, an Iowa Republican, said the party-line debt limit vote will “absolutely” help crystalize the case that Democrats’ spending is out of control. “It will be very effective in Iowa.”
Democrats are already heading into a challenging midterm campaign, particularly in the House, where the party has a slim majority, Democratic-leaning states are losing seats to Republican ones in the Census reapportionment, and the president’s party typically loses members during midterm elections. Control of the 50-50 Senate also is in play.
“It’s total political rhetoric, drama,” Michigan Democratic Representative Debbie Dingell said. “We shouldn’t be playing political games the way we are.”
Democratic leaders have primarily responded by casting the GOP as reckless with the economy in their readiness to risk a debt default as well as their actions when they controlled the White House and Congress.
The total U.S. debt rose from $19.8 trillion, or 104% of gross domestic product, when Trump took office in 2017 to $28.1 trillion, or 128% of GDP when he left in 2021. The $8.3 trillion increase during Trump’s single term is almost as much as the $10.6 trillion rise during Barack Obama’s two terms.
Democrats claim their $3.5 trillion economic program won’t add to deficits because it will be paid for with tax increases on corporations and the wealthy, though they haven’t finished negotiating a final version and the independent Congressional Budget Office hasn’t yet made a projection. A separate bipartisan infrastructure package backed by Biden would add $256 billion to the national debt over the next decade, the CBO estimated.
Democrats voted with Republicans three times during the Trump presidency to raise or suspend the debt limit to avoid default, despite opposing the 2017 Republican tax cuts that added to the debt.
This time, McConnell is insisting Democrats use a process called reconciliation to pass the debt limit increase in the Senate without Republican votes. Democrats so far have refused. They instead added the debt limit increase to stopgap legislation to avert an Oct. 1 government shutdown and fund disaster aid, daring Republicans to oppose the measure. The legislation passed the House, but Republicans have vowed to block the measure in the Senate when a procedural vote is taken as soon as Monday.
So far, Democratic efforts to blame Republicans for the stand-off haven’t worked. Asked which party would be more to blame if the U.S. defaulted, 33% of Americans said Democrats, 42% both parties, and only 16% Republicans, according to a Morning Consult/Politico poll taken Sept. 18-20.
The stability of global financial markets and strength of U.S. economic growth once again are on the line in the resulting game of chicken.
Mark Zandi, chief economist at Moody’s Analytics, warned in a note to clients that even a short default would raise borrowing costs to U.S. taxpayers for decades. A prolonged default on U.S. debts would cost the country 6 million jobs, drive down U.S. stock prices by a third and wipe out $15 trillion in household wealth, Moody’s predicts.
Even without a default, brinksmanship over the debt limit between Republicans and the Obama administration in 2011 provoked the first-ever downgrade in the U.S. sovereign credit rating and contributed to a stock-market slide.
The political payoff for the risk is nebulous.
Republican pollster Whit Ayres, a 30-year campaign veteran, can’t think of a single election in which a debt limit vote played a decisive role.
“There may be some campaign out there that someone can point to,” Ayres said, “I can’t come up with one.”
Jim Kessler, executive vice president for policy at Third Way, a think tank aligned with the Democratic party’s moderate wing, also argues there’s “more bark than bite” in established political wisdom that votes to raise the debt limit are perilous.
Even so, many moderate Democratic lawmakers represent closely divided constituencies and aren’t anxious to add to their political risks. Public feeling on government debt can be potent.
“American voters’ sensitivity to debt and deficits shows up episodically, but when it shows up it shows up with a vengeance,” Kessler said, citing the Tea Party movement that began in 2009 and helped provide energy for the Republican resurgence in the 2010 midterm elections.
Pete Brodnitz, a Democratic pollster who has worked for party leaders’ House Majority super-PAC in battleground races every election the past decade, said the midterm results will hinge on what the public believes about the party’s economic strategy. And that is the critical battle beneath the surface.
“An economic narrative is critical,” Brodnitz said. “If the economy gets better, Democrats won’t be helped unless there is a Democratic strategy people associate with it.”
The debt limit fight is playing out just as Congress debates the spending packages that will enact the Biden agenda and voters are forming impressions of the plan.
“They want the narrative to be the Democrats just want to spend,” Brodnitz said. “We need the narrative to be we’re trying to invest in our future, and the Republicans are trying to stand in the way.”
©2021 Bloomberg L.P.
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